- 8 - Moreover, the legislative history states, generally, that the basis adjustment rules are analogous to those provided for partnerships under section 705 and require that the basis of a shareholder in an S corporation will be adjusted for income and losses for any corporate tax year before the distribution rules apply for that year. In the instant case, the parties agree that MAI realized COD income in the amount of $2,030,568 in the taxable year 1991. Moreover, the parties concur that MAI was insolvent at the time the debt was discharged and that the attendant income derived therefrom is excludable from gross income pursuant to section 108(a)(1)(B) and (d)(7). The parties separate, however, on whether the Internal Revenue Code permits petitioner to increase the basis of his MAI stock by the amount of the S corporation's COD income. In essence, petitioner argues that the excluded COD income is described in section 1366(a)(1)(A) because it could affect his income tax liability if it were treated as a pass-through item of income. In particular, petitioner contends that COD income excluded under section 108(a) is "tax-exempt" income under sections 1366(a) and 1367(a). Thus, petitioner argues that after the amounts are passed through, he is entitled to a basis increase with respect to his MAI stock for the excluded COD income. In sum, petitioner argues that the issue turns onPage: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011